Citation:2007TCC500
Date:20070912
Docket: 2003-3554(GST)G
BETWEEN:
CANADA TRUSTCO MORTGAGE COMPANY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR TAXATION
Alan Ritchie, T.O., T.C.C.
[1] This matter came on for hearing by way of a telephone
conference call on Thursday, June 21st, 2007. It follows a judgment
of the Honourable Chief Justice Bowman of this Court dated December 17th,
2004, which allowed the appeal, with costs to the Appellant.
[2] The Respondent was
represented by Mr. John McLaughlin, and the Appellant by Ms. Martha MacDonald.
[3] The Appellant submitted a Bill of Costs in the amount
of $95,228.28. The only items in dispute were two amounts claimed as
disbursements for the services of two expert witnesses who prepared reports and
appeared at trial.
David C. Allan
(expert report on the nature and
purpose of asset securitization)
Expert Witness Report: 10 hours @ $1,500 per hour $15,000
Court Attendance: 8 hours @ $1,000 per hour $
8,000
GST $
1,610
Total $24,610
Loraine D. McIntosh
(expert report on accounting and
financial reporting requirements
with respect to securitized assets)
(Below is a summary of documentation
provided at the taxation hearing)
Meetings re: nature of engagement, etc.
3 hours
Preparation of expert report, meetings, final review 26
hours
Trial preparation, comment on Facts and Arguments
documents, notes, reference materials 14
hours
Attendance in Court 11
hours
Total: 54 hours @ $874* per hour $47,200
GST $
3,304
Total $50,504
*
$825 per hour plus 6% administrative charge
[4] Counsel for the Respondent objected to the amounts
claimed with respect to the number of hours charged as well as the hourly rates
charged, as it was his contention that they were excessive and unreasonable.
Hourly
Rates
[5] With respect to
the hourly rates charged by the two experts, counsel for the Respondent
characterized them as extravagant and as being the "Cadillac" of
experts - when in fact other experts could have been retained. He noted that
the only mention of the experts testimony or reports was at paragraph 30 of the
judgment, where the trial judge simply reproduced a definition of
securitization. He questioned whether their contribution was "essential"
– that the question was only whether GST should be applied or not to the
servicing of mortgages sold by Canada Trustco; he noted that the trial judge
had made that determination based on provisions of the Excise Tax Act
and the facts.
[6] Counsel for the Respondent
also noted that the testimony of Mr. Allan, in particular, had been
characterized by Appellant’s counsel at trial as "motherhood"
information that would not be contentious. He also found that there was
considerable overlap and commonality between the reports produced by the two
experts. He questioned why there was such a difference between the hourly rates
charged by the two experts. He argued that the Respondent should not be
responsible for the six per cent administrative surcharge. Finally, he noted
that much of what was presented was included in a partial Agreed Statement of
Facts appended to the judgment.
[7] Counsel for the Respondent cited AlliedSignal Inc. v. Dupont Canada Inc. et al.,(1998),
81 C.P.R.(3d) 283 (Fed Ct., T.D.), in which the taxing officer noted that
the unsuccessful party should not necessarily be responsible for bearing the
costs of such a witness when other expert witnesses were available and charged
lower fees. He also cited the decision in Apotex Inc. v. Syntex
Pharmaceuticals International Ltd. et al., (1999) 176 F.T.R. 142, in which this
premise was applied and the hourly fees charged by a particular expert were
found to be excessive and outrageous. He suggested that an hourly rate of $350
would be more reasonable, in line with the amount allowed in the Ontario Courts
for the services of a senior lawyer. He acknowledged that the expert witnesses
were leaders in their field, but suggested that other witnesses could have been
used.
[8] Counsel for the Respondent summarized his position and made reference to Engine
and Leasing Co. et al. v. Atlantic Towing Ltd., (1995), 93 F.T.R. 181 at
paragraph 4:
I should observe at the outset
that we are dealing with party-and-party costs. It is well established that
parties cannot recover all their costs under that kind of award. Also,
compensation of an expert witness during trial at the hourly rate allowed for
preparation may be found to be too generous. Further, there is no foundation
for the notion that counsel may incur any expert witness costs for which, in
the event of success, they will be fully compensated.
[9] Counsel for the
Appellant argued that the full amounts should be allowed as claimed, including
the administrative surcharge, as those were both reasonable and represented the
amounts actually disbursed. She cited 3664902 Canada Inc. et al. v. Hudson’s
Bay Co., (2003), 169 O.A.C. 283 at paragraph 17, in which the Ontario Court
of Appeal noted that under party-and-party costs, witness fees should be based
on what was actually spent, reduced if appropriate to what was reasonably spent.
She noted that the rates charged were those currently borne by the market for
experts of this calibre, and that counsel for the Respondent had presented no
evidence that there were in fact other experts with commensurate experience available.
She also cited AlliedSignal at paragraph 83, in which fees for what was
described as the "Cadillac" of experts were ultimately allowed in
that instance as the taxing officer felt the disbursement necessary to the
conduct of the appeal. She also cited L. & M. Wood Products (1985) Ltd.
v. The Queen, 98 DTC 4140 (T.C.C.), in which fees for an expert
were allowed as they were in line with market rates.
[10] Counsel for the
Appellant referred to section 154 of the Tax Court of Canada Rules (General
Procedure) ("the Rules") which outlines what the taxing officer
should consider at taxation. She noted that the amount in issue was significant
for this Court, some 2 million dollars; that it was a test case for many other
similar files before the Revenue Agency; and that there were very complicated
financial arrangements under consideration involving at least four major GST
issues. This resulted in a large volume of work for the conduct of the appeal,
and that this should all be considered by the taxing officer.
[11] Counsel for the Appellant disagreed with the Respondent’s suggestion of a rate comparable to fees
for a lawyer before the Ontario Court. She noted that it is well established
that charges for expert witnesses and their reports should be treated as
disbursements and not fees, and furthermore that in the present case we were
dealing with investment bankers and accountants – not lawyers.
Number
of Hours Claimed
[12] Counsel
for the Respondent objected to the number of hours claimed for the appearance
of Mr. Allan as an expert witness at trial, as he was both a material and an
expert witness and should not be entitled to expert fees for providing lay
testimony. His position was that a few hours’ attendance as an expert should be
allowed, and not the full eight hours claimed.
[13] Counsel for the Respondent objected to the 26 hours claimed by Ms. McIntosh for the
preparation of the expert report, noting that Mr. Allan had only claimed 10
hours for the preparation of a report of similar length and - in his view –
content. He also was of the view that some of the 14 hours for trial
preparation should be taxed off as the review of, and comment on, Facts and
Arguments documents did not fall within the role of an expert witness.
[14] In general, Counsel
for the Respondent raised questions as to the usefulness of the two experts’
reports and testimony at trial, again implied that there were significant
similarities and overlap between them, and disputed the need for the Appellant
to retain both experts. He noted that the Tariff is clear that disbursements
must be essential for the conduct of the proceeding and referred to AlliedSignal (supra)
at paragraph 81, in which the taxing officer outlined a three-pronged test for assessing
the reasonableness of expert testimony. He was of the view that it was
reasonable to hire the experts, however that did not constitute a blank cheque
for an award and that there was little evidence of the reliance placed on their
testimony by the trial judge.
[15] Counsel for the
Appellant stated that the appearance of the experts and the preparation of
their reports were critical to her client’s case. She noted that there were
only a handful of experts in Canada who could provide the context on securitization that
Mr. Allan had, and that Ms. McIntosh then provided expert input on the
accounting treatment of such securitized assets. Her view was that the
reproduction of a significant extract of Ms. McIntosh’s report in the judgment
spoke to its relevance and that she had provided critical testimony on the
financial statements that were the basis for the Crown’s assessment.
[16] Counsel for the Appellant noted that the Respondent had provided no basis for which the number
of hours claimed could be considered unreasonable. With respect to preparation
time, she cited Comsense Inc. v. The Queen, (2000), [2000] 3 C.T.C.
2790, 2000 DTC 2345 (T.C.C.), in which 68 hours for preparation was allowed. With
respect to attendance in Court, she noted that the experts could have been
called at any time and that it was more than reasonable that they be available as
a result.
[17] In summary, counsel
for the Appellant noted that the factors to be considered by the taxing officer
under section 154 of the Rules should result in her client being fully
indemnified if the test of reasonableness was met, which she believed it was as
noted in paragraph 10 above. The witnesses called were recognized as experts by
the Court, and there is no evidence that they were not useful to the Court at
hearing.
Decision
[18] The charges claimed for
the services of the expert witnesses must be found to be both essential for the
conduct of the proceeding and reasonable. This determination falls under the
discretion of the taxing officer as set out in section 157 of the Rules.
[19] At the outset, I note
that I am not an expert in securitization of assets nor am I familiar with the
market rates charged by experts or consultants in various fields of expertise. The
discretion exercised will therefore attempt to strike a reasonable balance
based on the arguments presented by counsel at the taxation hearing.
[20] I have no reason to
question the fact that the Appellant found it essential to hire the two experts
in question in support of their position. Despite the claim by the Respondent
that there were commonalities between the reports and the experts' testimony,
they were recognized by the Court as expert witnesses and ultimately contributed
to some degree to the success of the appeal.
[21] I also agree with
counsel for the Appellant, that, with respect to the factors set out in section
154 of the Rules, this matter met most if not all tests to a significant
degree:
Where party
and party costs are to be taxed, the taxing officer shall tax and allow the
costs in accordance with Schedule II, Tariff B and the officer shall consider,
(a)
the amounts in issue,
(b)
the importance of the issues,
(c)
the complexity of the issues,
(d)
the volume of work, and
(e)
any other matter that the Court has directed the taxing officer to consider.
[22] There is no doubt that
the two witnesses in question are highly qualified individuals who assisted the
Court by way of their reports and testimony. In no way does what follows put
that in question; however the nature of their relationship with the Appellant
needs to be examined.
[23] Could the Appellant
have called upon other experts, charging lower rates, and have achieved the
same result? Arguments made at the taxation hearing were inconclusive. I can
surmise that the financial means at the disposal of the Appellant might lead
counsel to seek out the most highly qualified experts available with less
concern for cost and value for money than would be the case for the lay
litigant. The premise that the account submitted by the experts by default
represents the going or market rate for experts of the calibre needed to support
this particular case is open to question.
[24] Similarly, the accounts
submitted by the experts were accepted and paid in full. I note from the
documentation that in the case of Ms. McIntosh two bills were presented in
November and December 2004 for lump sums of $22,000 and $25,200 plus GST
respectively, with no breakdown of hours charged, work performed, etc. That
breakdown was only provided by Ms. McIntosh to counsel for the Appellant by way
of an email in August 2005. It would appear on the surface that the accounts
were likely paid before the breakdown of services rendered was produced.
[25] I find the hourly rates
of $1,500 and $1,000 charged by Mr. Allan for preparation of his report and
attendance at trial to be quite high. I find the rate charged by Ms. McIntosh -
$874 per hour for all services rendered – to be more reasonable. The rates
suggested by counsel for the Respondent were in the range of $350 or $400 per
hour and were not based in any way on the market rates for highly qualified
experts, and I find them to be too low.
[26] Any attempt to strike a
reasonable balance will be to a large extent arbitrary and subjective. However,
in the absence of conclusive arguments by the two parties with respect to
appropriate rates, I see no alternative.
[27] I will allow the
hourly rate charged by Ms. McIntosh of $825, including the 6% administrative surcharge,
for a total of $874 per hour. This amount was paid by the Appellant, and the
fact that the administrative surcharge is explicitly noted as opposed to being rolled
into in the hourly rate I find of no consequence.
[28] I will allow $1,000 per
hour for the services of Mr. Allan, both for the preparation of the expert
report and for attendance at trial.
[29] I note from the minutes
of the proceedings that Mr. Allan was called as an expert at 11 a.m. on the
first day, and concluded that testimony at approximately 3:00 p.m. He
continued thereafter as a factual witness. I will therefore allow 6 hours
for his attendance as an expert at trial. The full 10 hours charged for the
preparation of his report is allowed. The amount allowed for the services of
Mr. Allan is 16 hours, for a total of $16,000 plus $1,120 GST.
[30] I will allow the 11
hours claimed by Ms. McIntosh for attendance at trial. She testified the
morning of the second day, and I find it reasonable that she be expected to
attend from the outset of the proceedings in order to be available to testify
depending on the conduct of the litigation.
[31] I agree with counsel
for the Respondent that some of the charges claimed by Ms. McIntosh are not
directly related to the preparation of her report or her attendance at trial in
the context of a taxation of costs hearing. A total of 43 hours was charged for
work done prior to her attendance at trial. Preparatory meetings, comments on
various documents, taking of notes – these may be helpful to the Appellant but
are not directly related to the drafting of the report. I will allow 20 hours
for the preparation of the report.
[32] The total amount
allowed for the services of Ms. McIntosh is therefore 31 hours for a total
of $27,094 plus $1,897 GST.
[33] The Appellant’s Bill of
Costs in the amount of $95,228.28 is taxed, and $66,225.28 is allowed.
Signed at Ottawa, Canada, this 12th day of September 2007.
"Alan Ritchie"
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